Tuesday, April 17, 2012

Durbin Amendment


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Durbin Amendment Act

About the Durbin Amendment Act

It seems every time you turn on the television, someone is talking about money. Whether they are talking about the housing crisis, unemployment, or the current state of the economy, money is everyone’s mind. However, no one thinks about money more than bankers, and one thing that got them all twisted into knots was the new Durbin Amendment Act that regulated the amount of money they could charge for electronic debit transactions (EDT). This amendment was added at the last minute, signed into law by President Obama on July 21, 2010 and went into affect starting October 1, 2011.

The Durbin Amendment Act is part of an overall attempt to reform Wall Street and to protect consumers and businesses from being taken advantage of by the banks. Approximately $1.3 trillion worth of Visa/MasterCard debit transactions occur every year. It has become the most popular way that people pay bills and make purchases, exceeding even credit card usage. Banks, wanting to make up lost profit, was looking at increasing the amount of money they charged businesses to process debit transactions. However, this amendment limits the amount of money that can be charged per debit transaction. Specifically, the fee must be reasonable and proportional to the amount of money it costs the debit card issuer to service the transactions.

The banks were upset with the Durbin Amendment Act because it meant a loss of profit to them. However, businesses and individuals applaud the amendment for good reason. If banks increased the amount of money they charged for processing debit transactions as they had intended to do the businesses would have to absorb that cost and most likely would have passed it on to consumers in the form of increased costs for goods and services. The higher prices would have mostly affected the people who least could afford a cost of living increase: the middle and lower class.

There are, of course, exceptions built into the Durbin Amendment Act. The interchange fees that are connected to using debit or prepaid cards for government programs, for re-loadable prepaid cards, and small issuers (less than $10 billion in assets) are not subject to the rules of this amendment. Merchants, for their part, cannot discriminate against any specific issuer. However, they are allowed to require a minimum purchase amount to accept debit cards. Although the act made a lot of waves when it was first proposed, it promises to have a positive impact on society.
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